Angels or Venture Capital?

Investors seeking to invest some of their wealth and entrepreneurs seeking capital need to be clear on major differences between the Angels and VCs. Angels tend to be people who invest their own money in early stage private companies in hopes of higher than normal returns.  Historically, only the very rich would often invest in this way.  The exception was and continues to be 'friends and family' who invest in enterprises run by people they know well or have a long-term connection with.Today, the legal requirements for investing in a company other than that of friends or family are detailed by the law.  For example, private companies cannot solicit investment broadly from strangers unless those people meet explicit criteria.  In Canada, the key criterion is "qualified investor" and it Includes people of substantial net worth (or annual income) or individuals who can be otherwise explicitly proven to be "sophisticated investors".  These definitions exist to protect the great majority of people from fraud.Venture Capitalists are often former merchant bankers with 10 to 20 years of experience who have moved to managing pools of capital using different investment criteria than, say, banks or pension funds.  For the last 30 years, the growth of pension funds and competition has led to legal allowances for pension funds to dedicate 3% of their capital to 'above normal risk' categories such as VC funds.  These funds can hold $100M portfolios and fund managers are paid a percentage of the capital managed as managers, in the same way as are mutual fund managers.Angels typically do not get paid salaries, much less big salaries. Instead they tend to form funds to pool effort and capital with other like-minded people to make better decisions and diversify the risk. A total portfolio of say $1 to $10 M is considered a reasonable range for angels.  At the same time, legally, angels are just a specific kind of venture capitalist.  For example, the E-Fund is generally described in its common name as an Angel fund.  At the same time, legally, it is a fully registered VCC (Venture Capital Corporation). This means that E-Fund can and must conduct its business according to the rules of Venture Capital Funds.  The reason for this is that the use of specific funds in specific ways has rights and obligations, which are detailed in the law.  The law does not care about the relatively subtle differences between the two activities.The practical consequences of this is that Angel Funds do not carry the high management fees of VC's but, because of their smaller capital base, they tend to invest smaller amounts in companies. Thirdly, they invest between the startup (friends and family) phase of raising capital and the larger capital needs for significant growth ($5 or $10M investments) of VCs. Thus, companies raising angel money in Vancouver tend to seek less than $500,000 for a specific time frame.  Another consequence is that Angels tend to try to aid their investees succeed in a host of ways where their financial, technical or market sector experience can be brought to bear.  VCs are often facilitative in more financial ways and tend to bring much more legal and financial sophistication into company documents and control systems.  Both factors can be seen as "age and stage" aspects of a developing corporation.  VCs being later stage than angels and angels being later stage than friends and family.